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Conagra Brands’ EPS Could Continue to Decline


Jun. 19 2019, Updated 1:12 p.m. ET

Higher interest expenses

Conagra Brands (CAG) beat analysts’ earnings estimate in the past two quarters. Despite the earnings beat, Conagra Brands’ adjusted earnings registered a YoY (year-over-year) decline during the last reported quarter, which reflected higher interest expenses.

We expect Conagra Brands’ earnings to stay pressured. We expect the company’s earnings to fall in the fourth quarter. Conagra Brands’ increased debt level, due to funding the Pinnacle Foods acquisition, is expected to drive its interest expenses higher and impact its bottom line. Besides higher interest costs, Conagra Brands’ earnings will likely take a hit due to the increased outstanding share count and YoY rise in the effective tax rate. Investments with retailers and higher raw material, packaging, and transportation costs are expected to hurt Conagra Brands’ margins and EPS.

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Higher interest costs are having a negative impact on major food companies’ bottom lines including General Mills (GIS), J.M. Smucker (SJM), Kellogg (K), and Campbell Soup (CPB). Analysts expect General Mills’ fourth-quarter adjusted earnings also to decline on a YoY basis, which reflects increased interest expenses and a higher share count. Campbell Soup’s adjusted earnings fell ~5% during the last reported quarter, which reflected cost headwinds and higher interest expenses.

Analysts’ estimate

Analysts expect Conagra Brands to post an adjusted EPS of $0.41 during the fourth quarter, which implies a decline of 18.0% YoY. Analysts expect input cost headwinds, higher packaging and transportation costs, and increased interest expenses to drag Conagra Brands’ earnings down in the fourth quarter. However, improved organic sales and cost-savings could provide some cushion.


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